Saturday, August 2, 2008

Easy Credit the rule in the GCC, and Oman

Interesting article this week in one of the UAE financial mags about the explosion in UAE and GCC Credit card debt and personal loans. As in Oman, it seems many people are in debt up to the eye-balls in loans. In fact, a rising problem in Dubai and Abu Dhabi are so-called ‘skips’, young expats (usually European) who live the high life a little too well, get into a deep pit of personal debt, and end up maxing out everything and then fleeing the country.

The key problem is the immaturity of the financial markets: in most of the GCC you can go from bank to bank, applying for personal loans and credit cards, with no cross-check between the lenders as to the actual debt load of an individual, as there are no real credit rating agencies. Across the GCC banks have relied on an adhoc system of requiring letters from employers, insisting salaries are paid directly into the accounts, and ‘blacklists’ of people who are to be denied credit.

Easy unsecured credit is a huge problem in the US and UK, so you can imagine the damage it could do in a country like Oman, where the average citizen is even less fiscally smart. In addition, Oman seems to have a tremendous cultural expectation that, no matter what, the mighty government (or Daddy) will step in to fix all financial ills. Interestingly, Kuwait’s Government have recently had to create a $2bln fund to bail out locals who have effectively borrowed themselves into bankruptcy.

Oman has done something good with the plan to create such a real credit rating agency here by 2009, teaming up with Experian, a major global consumer credit rating agency. Called the National Bureau of Commercial Information, it is (naturally) backed by the big boys (Zubair, Bahwan, Hosni…) and supported by the Central Bank. This is well overdue, but ahead of the rest of the GCC.

Why is this an issue?

In a report in June the CBO reported that the level of outstanding credit in Oman rose almost 50% in 2007, rising to $19.4bln. They also lowered the ceiling on the maximum interest rate on personal loans to 8%. (in theory only on new loans, but people could refinance old loans to the new rate). According to the CBO official report, Personal Lending by Oman’s Commercial banks rose in 2007 by 42%, from $4.7bln to $6.7bln.

A credit crash seems almost inevitable in Dubai with the whole 'running on vapor' attitude to everything, and a society dominated by relatively young expats. Dubai is also a net importer of oil…

Hopefully it isn’t too late to forestall a ‘debt crunch’ here, plus deposit growth in Oman is pretty robust, also at 40%+. But its a worry that so much of the easy credit is being spent on cars, weddings and holidays. As long as oil prices and the MSM stay high, things should be OK in Oman for now. Else the next bit of financial sophistication will need to be bankruptcy laws.

Oman Tribune article
Sultanate gets first private credit bureau

MUSCAT The National Bureau of Commercial Information SAOC (NBCI) launched Oman’s first private credit bureau on Monday under the auspices of HE Hamoud Bin Sangour Al Zadjali, executive president of Central Bank of Oman (CBO).

NBCI has partnered with Experian to acquire technical know-how and systems for the bureau. Experian, one of the three largest global information services companies, has signed an agreement with NBCI for supply of its proprietary software to enable NBCI to establish a credit reference data base and bureau service in Oman.

The partners of NBCI are Al Jawhar National Corporation, Infoline, Zubair Corporation, Qurum Business Group and Al Farqad Investments; and Hind Bahwan is its chairperson. NBCI vice-chairman and MD Khalid Ahmed Al Hosni said credit bureaus are part of the financial infrastructure of a country and are among the providers of basic information for developing credit strategies.

The function was attended by Executive President of CMA Yahya Al Jabri


  1. Kuwait has set the lead many times – forgiveness of debts for Nationals. The bigger the debt the more your creditor has to accommodate you….

  2. Oman definitely does not have easy credit. Not the way you describe it. It might be easy to borrow, but it's nothing like the ease of getting credit in the US. For one thing, no bank will give anyone a loan here in Oman if their salary isn't assigned to the bank. While Oman doesn't have credit agencies like in the US, all banks and finance companies have access to a Central Bank database which has information on everyone's loans and borrowings. All banks and finance companies have to update this database on a monthly basis and have to check the database before lending to anyone. The system doesn't give detailed information such as listing which bank the loan is from, but it does give how much total loan, mortgage loan, credit card, etc has been availed by that person from the entire system.

    The central bank sets the maximum debt burden which can be taken by individuals. If the debt burden is 60% then once a person's total installments reach 60% of his salaries he can't borrow anymore from any bank or finance company. They have to check the system first to check before approving the new loan.

    This is totally different than how it is in the US, for example, where credit card companies bombard individuals with pre-approved credit cards. People there can very easily get in debt over their heads and then have no way of paying. Here, you can get heavily in debt, and more and more of your salary gets taken by the bank or finance company, but not to the point where even if your entire income is taken you still can't cover the interest on your loans, as happens very often in the US. When I was a student in the states, I didn't have any income other than my monthly stipend of $775 from the Ministry of Higher Education and whatever my family sends me from time to time. And yet I had credit cards with limits of about $10,000 plus an American Express green card, not counting store cards. This is 15 years ago, before American banks went crazy with credit. After I graduated friends of mine who were still in the US started getting pre-approved platinum cards with limits as high as $25,000.

    When I came back to Oman, the bank that I worked for refused to give me a credit card till I completed a year with them and even then they give me a limit of two times my salary, which was less than the smallest limit I had in the US.

    Borrowing in Oman is always collaterized, regardless whether it's a salary alone against a person's assigned salary, a car loan against co-registration over a vehicle, or a housing loan against a mortgage on a house. I see nothing wrong with bank credit growing as an effect of people owning their own houses. The big fear is when things go like they usually go in Kuwait and people borrow against their salaries without any specific reason. They take big loans just to spend money. Once the money's spent they end up paying a large percentage of their salaries to the bank with nothing to show for it. And as happens in Kuwait, they then go cry to the government asking it to pay off their debt.

  3. The problem in most of the countries including Oman is the number of people expats from all nationalities spending on the cards and leaving the country. How can the banks recover the money from them when they leave for good.


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